The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate firmed slightly as Tuesday’s session progressed as weak oil prices and last week’s surprise decision by the Bank of Canada to cut interest rates continued to weigh on the ‘loonie’, market volatility was also weakening the currency.
Earlier the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate softened but remains close to a six-year high after preliminary Gross Domestic Product (GDP) data released by the Office for National Statistics (ONS) disappointed economists.
The Pound Sterling to Canadian Dollar hit a session high of 1.887
In the previous session, Sterling advanced to its best level in six years as oil prices fell sharply and as Bank of England (BoE) policy maker Krisitn Forbes suggested that UK interest rates could be raised sooner than expected.
The Canadian Dollar meanwhile had been knocked lower by TD Bank lowering its economic growth forecasts and as traders increased speculation that the Bank of Canada could make further cuts to interest rates following its surprise decision to do so earlier in the month.
TD Bank said that it now expects the Canadian economy to expand by just 2% this year a decline in its earlier forecast for growth of 2.3%. The bank also said that it expects the BoC to cut rates again by a quarter of a percentage point.
Oil prices have fallen more than 40% since the end of November when Saudi Arabia rejected calls to cut production in order to support prices. Overall, prices are down about 55% from the highs of last summer as the marketplace works through a huge imbalance in supply and demand. Prices are expected to remain weak as the Organisation of petroleum exporting countries (OPEC) announced that it would not taper production to ease the global supply glut.
UK GDP Data Softens GBP Exchange Rate
The Pound softened against many of its most traded peers in a relatively quiet session as data released by the ONS showed that the UK economy expanded by a smaller than forecast margin in the fourth quarter of 2014. The preliminary GDP report showed that the UK economy grew by 0.5% on a quarter on quarter basis and expanded by 2.7% on an annual basis.
Despite both figures being lower than expectations the annual figure suggests that the UK economy expanded at its fastest pace since 2007 and was a solid improvement from the 1.7% recorded in 2013.
Economists are hoping that the slowdown seen in the fourth quarter will not be the start of a trend.
‘It is too early to say if this slowdown will persist. The dominant services sector remains buoyant while the contraction has taken place in industries like construction, mining and energy supply, which can be erratic,’ said ONS’s chief economist Joe Grice.
The Pound Sterling to Canadian Dollar hit a session low of 1.875
